Corporation Tax, explained

Here’s the reassuring part first: Corporation Tax is a tax on your profit, not your turnover. You only pay it on what’s left after your allowable costs, so the more legitimate expenses and allowances you claim, the smaller the bill. That’s also the catch. Plenty of company owners pay more than they need to, simply because nobody told them what they could claim or planned ahead of the year end. This guide, and a good accountant, fixes that.

Figures are correct at the date of review. Always check GOV.UK for the latest.

What Corporation Tax is

Corporation Tax is charged on the taxable profits of limited companies (and some other organisations, like clubs and associations). “Profit” here means your income minus your allowable business costs and capital allowances, not the money in your bank account and not your sales. There’s no tax-free allowance the way there is for personal income: a company pays Corporation Tax on its first pound of profit, which is why getting your costs and allowances right matters from day one.

The rates and marginal relief

Since April 2023 there have been effectively three bands, and they still apply for 2026:

• 19% on profits up to £50,000 (the small profits rate).
• 25% on profits over £250,000 (the main rate).
• In between, you pay the main rate reduced by marginal relief, which smooths the jump. The quirk worth knowing: profits in that £50,000 to £250,000 band carry an effective marginal rate of 26.5%, slightly higher than the headline 25%, because the relief is being withdrawn as you earn more.

One trap catches company groups and directors with more than one company: the £50,000 and £250,000 limits are shared between “associated companies”. With one associated company they halve to £25,000 and £125,000, so you hit the higher rates on lower profits. If you run more than one company, this needs planning.

For a worked example of the tax at every profit level, the marginal relief formula and what the rate used to be, see our full guide to Corporation Tax rates and marginal relief.

Deadlines: you pay before you file

Corporation Tax has a deadline order that surprises people. You must pay your Corporation Tax within 9 months and one day of your accounting period ending, but you don’t have to file your CT600 return until 12 months after. So the payment is due nearly three months before the return. For a 31 March year end, that means paying by 1 January and filing by 31 March the following year. (Large companies with profits over £1.5 million pay in quarterly instalments instead.) Miss the filing deadline and penalties start at £100 and escalate, so we keep both dates handled well ahead of time.

For a table of pay and file dates by year end, how to pay, and the instalment schedule for large companies, see Corporation Tax deadlines.

What you can deduct

This is where the bill actually gets decided. Your taxable profit is after allowable costs, which broadly means anything spent “wholly and exclusively” for the business: staff wages, your own salary, premises, software, professional fees, and much more. On top of everyday costs, capital allowances let you deduct the cost of equipment: the Annual Investment Allowance gives 100% relief on up to £1 million of qualifying plant and machinery, and “full expensing” gives a 100% first-year deduction on qualifying new main-rate equipment. Used well, these can wipe out the tax on a profitable, investing year.

How to pay less, legally

Reducing Corporation Tax isn’t about anything dubious. It’s about using the reliefs that exist:

• Pay yourself efficiently through the right salary and dividend mix, and make employer pension contributions, which are usually an allowable expense for the company.
• Claim all your capital allowances (AIA and full expensing) on equipment and, where relevant, integral features.
• Check for R&D relief if you develop products, software or processes, which many eligible companies miss.
• Time it well: bringing forward a genuine, planned purchase before your year end can move the relief into the current year.
• Claim every legitimate expense, including the small recurring ones that quietly add up.

The difference between a reactive accountant and a proactive one often shows up right here, in tax that was avoidable but paid anyway.

Corporation Tax and dividends

Worth understanding the two layers. Your company pays Corporation Tax on its profit first. What’s left can then be paid to you as dividends, on which you may pay dividend tax personally. Planning the two together, company and personal, is how you keep the overall tax as low as it legitimately goes, and it’s exactly what a good accountant does rather than treating them as separate problems.

How Xpert handles your Corporation Tax

We prepare your accounts and CT600, calculate your tax correctly (marginal relief, associated companies and all), claim every allowance and expense you’re entitled to, and plan ahead so nothing is a surprise. You get a dedicated accountant, a fixed monthly fee, our 3-hour email promise, and both your payment and filing deadlines managed for you. No panic, no penalties, no overpaying.

Want to know if your company is paying more Corporation Tax than it needs to? Take our 2-minute quiz or book a free consultation, and we’ll take a look.